Uncertified Third-Party Computer Records Cannot Prove Clandestine Removal: CESTAT Sets Aside ₹12.69 Crore Excise Demand

Ramgarh Sponge Iron Private Limited Vs Principal Commissioner, CGST & CX (CESTAT Kolkata)

Summary: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, comprising Judicial Member Ashok Jindal and Technical Member K. Anpazhakan, allowed three appeals filed by Ramgarh Sponge Iron Private Limited (RSIPL), its director Mahabir Prasad Rungta and its Manager (Accounts), Om Prakash Singh, against an order confirming central excise duty and penalties arising from alleged clandestine manufacture, clearance and undervaluation of sponge iron. The Department had alleged unaccounted production and clearance of 80,283.470 metric tonnes of sponge iron during September 2010 to 8 April 2013. The original show-cause notice demanded ₹22,56,24,372, including cess, while the adjudicating authority confirmed ₹12,69,58,230 and dropped the balance demand. The Tribunal held that the allegation of clandestine removal could not be sustained on uncorroborated third-party records and statements. It set aside the entire confirmed duty demand, consequential interest and all three penalties.

The proceedings originated from intelligence received by the Directorate General of Central Excise Intelligence (DGCEI), Jamshedpur, alleging clandestine manufacture and clearance by RSIPL, a manufacturer of sponge iron under tariff sub-heading 72031000. On 11 April 2013, officers searched the company’s factory and other premises, including those associated with Om Prakash Singh, who also worked as a tax practitioner for multiple clients. The investigation recovered computer data from a laptop, pen drives and hard disks, including transactions recorded in the names of Ganesha Industries and Vinayak Enterprises. Treating those records as evidence that the trading firms’ transactions were actually clandestine sales by RSIPL, the Department proposed substantial central excise duty demands. Statements were recorded from employees, accounts personnel and the company’s director under Section 14 of the Central Excise Act, 1944. The adjudicating authority ultimately imposed an equal penalty of ₹12,69,58,230 on the company, ₹50,00,000 on its director and ₹5,00,000 on its accounts manager, and ordered appropriation of ₹1 crore deposited during investigation.

The appellants disputed the fundamental assumption that records relating to Ganesha Industries and Vinayak Enterprises represented transactions of RSIPL. They submitted that both were separately registered trading concerns and that Om Prakash Singh maintained accounts for several independent clients. They also pointed out that the Department had failed to identify the individuals who entered data into the electronic devices. No certificate satisfying Section 36B(4) of the Central Excise Act, 1944 had been obtained. The appellants argued that the electronic records were therefore inadmissible and could not establish actual manufacture or clearance by their company. Reliance was placed on judicial authorities concerning the admissibility of electronic evidence, including Anvar P.V. Vs P.K. Basheer, Ambica Organics Vs Commissioner of Central Excise and Commissioner of Central Excise Vs Shivam Steel Corporation.

The Tribunal examined the statutory requirements of Section 36B(2) and Section 36B(4) and found that the Department had neither established the origin of the electronic entries nor obtained the mandatory certification. It observed that portable devices such as pen drives and laptops could be used by different persons and that, without identifying the author of the entries and satisfying the statutory conditions, such printouts could not be relied upon to demand duty. The factory search had revealed no discrepancy in the stock of raw materials or finished goods, and the available weighbridge and production records were consistent with the company’s records. The Tribunal also found no evidence demonstrating that the separately registered trading firms had been established by RSIPL or were being used as fronts for its clandestine sales. Accordingly, it rejected the inference that all transactions recorded in their names represented unaccounted clearances by the appellant.

On witness statements, the appellants contended that the Department had failed to follow the procedure under Section 9D of the Central Excise Act. Only three persons had been cross-examined, and their earlier statements were retracted. The remaining statements had not been tested in accordance with the statutory procedure. The Tribunal held that the statements recorded under Section 14 could not be treated as admissible evidence to prove clandestine removal without complying with Section 9D. It relied on judicial principles governing the statutory examination of witnesses, including the Chhattisgarh High Court’s decision in Hi Tech Abrasives Ltd. Vs Commissioner of Central Excise & Customs. Consequently, the Tribunal rejected the Department’s reliance on the disputed statements to establish the alleged transactions.

The Tribunal further found no independent evidence of clandestine manufacture or removal of the alleged quantity of sponge iron. There was no demonstrated procurement of excess iron ore, coal or other raw materials, no evidence of additional labour or electricity consumption, no proven transportation of unaccounted finished goods, no identified purchasers confirming illicit receipts and no established flow of unaccounted sale proceeds. The Tribunal emphasised that clandestine clearances require tangible, affirmative and corroborative evidence, rather than assumptions drawn solely from computer records or retracted statements. Regarding undervaluation, it held that the Department had arbitrarily relied upon the highest monthly sale price and had travelled beyond the scope of the show-cause notice. Since the appellant’s products could not automatically be valued by reference to goods manufactured by other persons, the undervaluation demand was also unsustainable.

The Tribunal consequently held that the Department had failed to establish clandestine manufacture, removal or undervaluation. Since the foundational allegations had not been proved, the central excise duty demand of ₹12,69,58,230 and consequential interest were set aside. The equal penalty imposed upon RSIPL was also quashed. As regards director Mahabir Prasad Rungta, the Tribunal found no evidence of his involvement in any activity relating to excisable goods liable to confiscation and set aside his ₹50 lakh penalty. It similarly set aside the ₹5 lakh penalty imposed on Om Prakash Singh, noting his subsequent retraction and the absence of sufficient evidence establishing abetment. By Final Order Nos. 76930–76932/2024 dated 5 September 2024, the Tribunal allowed all three appeals with consequential relief, if any, in accordance with law.

Cases Discussed

• Anvar P.V. Vs P.K. Basheer (Supreme Court); (2014) 10 SCC 473; 2017 (352) E.L.T. 416 (S.C.) — Extensively quoted regarding the admissibility of electronic evidence under Section 65B of the Indian Evidence Act, 1872, and the requirement of prescribed certification for computer-generated records.
• Ambica Organics Vs Commissioner of Central Excise & Customs, Surat-I (CESTAT Ahmedabad); 2016 (334) E.L.T. 97 (Tri.-Ahmd.) — Extensively reproduced for the proposition that electronic records and computer printouts cannot establish clandestine removals unless the statutory conditions under Section 36B are satisfied.
• Hi Tech Abrasives Ltd. Vs Commissioner of Central Excise & Customs (Chhattisgarh High Court); 2018 (362) E.L.T. 961 (Chhattisgarh) — Relied upon concerning mandatory compliance with Section 9D before statements recorded during investigation can be admitted and relied upon in adjudication.
• Commissioner of Central Excise Vs Shivam Steel Corporation (Orissa High Court); (2023) 2 Centax 259 (Ori.) — Cited by the appellants in support of the argument that electronic records cannot be authenticated merely through oral evidence without satisfying the relevant statutory requirements.
• Jai Balaji Industries Ltd. Vs Commissioner of CGST & CX (CESTAT Kolkata); 2023-VIL-771-CESTAT-KOL-CE — Cited regarding the unreliability of unverified computer data recovered from third-party premises in proceedings alleging clandestine clearances.
• Govinda Das Vs Commissioner of Customs (Preventive), Kolkata (CESTAT Kolkata); 2023 (385) E.L.T. 722 (Tri.-Kolkata) — Cited by the appellants concerning evidentiary safeguards applicable to investigation statements.

FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT KOLKATA

M/s. Ramgarh Sponge Iron Private Limited (hereinafter referred to as the appellant/RSIPL) have a manufacturing unit at Village-Hoshir, P.O. Giddi, District Hazaribagh. The appellant manufactures Sponge Iron falling under Chapter sub-heading 72031000 of the First Schedule to the Central Excise Tariff Act, 1985 in the said factory. They have been procuring raw materials viz. Iron Ore, Coal, Dolomite etc. from various suppliers for use in production of Sponge Iron in their aforesaid factory.

2. Acting on the intelligence that the appellant are engaged in manufacture and clandestine clearance of excisable goods, namely sponge Iron, the officers of DGCEI, Regional Unit, Jamshedpur (hereinafter referred to as “DGCEI”) conducted simultaneous searches at many places associated with the appellant on 11.04.2013 and retrieved one laptop, two pen drives and two detachable hard disks. The said laptop was opened and some files and folders related to RSIPL were found. The print outs of data in tally format were taken and seized in the presence of Om Prakash Singh, Manager (Accounts). On the basis of the documents recovered from the residence and office of Mr. Om Prakash Singh, Document No. 50/DGCEI/JRU/RSIPL/SO/13 and 51/DGCEI/RSIPL/SO/JRU/13 which were the documents related to his client Ganesha Industries and Document Serial No. 8, 9, 11, 12, 13, 29, 33, 35, 46, 47, 48, 49, 50, 52 and 53/DGCEI/RSIPL/SO/JRU/13 which were documents related to Vinayak Enterprises, were created. After analysing these documents, the officers of DGCEI alleged that stocks of both the companies, namely, Ganesha Industries and Vinayak Enterprises were that of the Appellant

2.1. A Perusal of the documents recovered and seized by the DGCEI indicated large scale evasion of Central excise duty by the appellant on account of suppression of production and clandestine clearances of sponge iron as well as on account of undervaluation resorted to by them, during the period from September, 2010 to 8th April, 2013.

2.2. During the course of search operation and subsequent investigation, various statements were recorded under Section 14 of the Central Excise Act, 1944. Some of the persons associated with the appellant company from whom statements were recorded are as under:

(i). Statements of Rajesh Kumar Agrawal, Supervisor of RSIPL, were recorded on 11.04.2013 & 01.07.2013.

(ii). Statements of Shyam Dutt Sharma, Manager Accounts of RSIPL, were recorded on 11.04.2013 & 09.07.2013.

(iii) Statement of Mahanand Kumar, Accounts Assistant of RSIPL, was recorded on 11.04.2013.

(iv). Statements of Om Prakash Singh, Manager (Accounts) of RSIPL, were recorded on 11.04.2013 & 03.07.2013.

(v). Statement of Chanchal Kumar, Dispatch Assistant of RSIPL, was recorded on 12.06.2013.

(vi). Statement of Sarfraj Ahmad, Computer Operator of RSIPL, was recorded on 17.07.2013.

(vii). Statement of Amarnath Singh, Director of Uday Vijay Steel Pvt. Ltd. was recorded on 14.08.2014 .

(viii). Statement of Mahabir Prasad Rungta, Director of RSIPL was recorded on 05.06.2015.

2.3. The documents and materials seized from the premises of Shri Om Prakash Singh, Accountant of the appellant-company indicate that he has been working as a Tax Practitioner for many companies. The documents seized from Shri Om Prakash Singh contains details of transaction by many companies including the sale details of the two companies namely, M/s. Ganesha Industries and M/s. Vinayak Enterprises.

2.4. On analysis of the data recovered during the course of investigation, the officers of DGCEI recorded the statement from Shri Om Prakash Singh. In his statement, Shri Om Prakash Singh stated that wherever the name of M/s. Ganesha Industries appears, it denotes that the actual transactions of those entries were carried out by RSIPL. In his statement Shri. O.P. Singh submitted that M/s. Vinayak Enterprises is a trading firm registered with commercial taxes department, but the invoices of Vinayak Enterprises were used by RSIPL for effecting Kachha sales, i.e., clandestine clearances. However, Mr. Mahabir Prasad Rungta, Director of RSIPL categorically stated that the appellant company has no relation with neither M/s. Ganesha Industries nor M/s. Vinayak Enterprises. On the basis of the statement from Shri Om Prakash Singh, the officers came to the conclusion that the documents relating to the two companies, M/s. Ganesha Industries and M/s. Vinayak Enterprises were actually belonged to the appellant company only. Accordingly, it was alleged that all the sales of Sponge Iron shown against the said two companies are to be considered as the manufacture and clandestine clearance of the said goods by the appellant company. Thus, it was proposed to demand central excise duty from the appellant company as if all the sale transactions shown against the said two companies were actually done by the appellant-company themselves.

2.5. Accordingly, on completion of the investigation, a Show Cause Notice dated 03.07.2015 was issued to the appellant demanding central excise duty of Rs.22,56,24,372/-, including Cess, along with interest and penalty. On adjudication, the Ld. adjudicating authority confirmed the duty demand of Rs.12,69,58,230/-, along with interest, and dropped the balance demand of Rs.10,86,66,142/-. He also imposed equal amount of duty confirmed as penalty on the appellant company. Penalty of Rs.50,00,000/- has been imposed on Shri Mahabir Prasad Rungta, Director of the appellant-company (appellant no. 2 herein). Rs.5,00,000/- as penalty was imposed on Shri Om Prakash Singh, Manager (Accounts) of the appellant company (appellant no. 3 herein). The ld. adjudicating authority also ordered appropriation of Rs.1,00,00,000/- paid by the appellant-company during the course of investigation.

2.4. Aggrieved against the confirmation of duty demand along with interest and penalty, the appellant-company filed appeal before this Tribunal. Shri. Mahabir Prasad Rungta, Director of the appellant-company and Shri Om Prakash Singh, Accountant of the appellant-company also filed appeals before this Tribunal against imposition of penalties on them. As all the three appeals emanate from the same Order-in-Original, all the three appeals are taken up together for decision by a common order.

3. The Ld. Counsel appearing on behalf of the appellants submit that Shri. Om Prakash Singh is a Tax Practitioner rendering service to various clients and RSIPL is one of the clients; M/s. Ganesha Industries and M/s. Vinayak Enterprises, two trading firms dealing in sale of sponge iron, are also clients of the Tax Practitioner Shri. O.P. Singh. It is submitted that the appellant-RSIPL have no connection with the two trading firms; the officers of DGCEI have no evidence on record to allege that all the sale transactions undertaken by the two trading firms are actually belonged to the appellant-company.

3.1. It is also submitted that the officers seized various documents, materials from the computers, laptop and pen drives seized from Shri. O.P. Singh and taken print out of the same; However, the officers have not identified the person/persons who made the entries in the computers, pen drive and laptop. Accordingly, the appellants submit that the documents retrieved from the computers, pen drive and laptop cannot be relied upon as evidences to implicate the appellant-company in the alleged offence.

3.2. It is the submission of the appellant that the printouts taken from the computers, pen drives and laptop recovered from the premises of Mr. O.P. Singh cannot be admitted into evidence without complying with Section 36B(2)/36B(4) of the Central Excise Act, 1944. It is contended that the print out taken from the computer, pen drives and laptop are not accompanied with the Certificate as mandated under section 36B(4) containing the following details:

(a) describing the manner in which the data contained in the printouts /electronic record are produced.

(b) the certificate must furnish the particulars regarding the computer, pen drives and laptop which were used for production of the printouts/ electronic record.

3.3. Further, the appellants submit that in the instant case, the computer, pen drives and laptop were seized from a third party premises, namely from the office of the Tax Practitioner Mr. O.P. Singh; pen drives and laptops are floating devices and they can be taken anywhere and used by any person to enter data; there was no enquiry conducted to ascertain the person who entered the data contained in the computer, pen drives and the laptop. In support of their contention, the appellants relied upon the decision of the Hon’ble Orissa High Court in the case of CCE Vs. Shivam Steel Corp. (2023) 2 CENTAX 259 (Ori.) wherein it has been held that Printout/Electronic record cannot be proved only by oral evidences/ statements.

3.4. The appellant submits that in the present case, the conditions of Clause (a), (b), (d) of Section 36B(2) are not satisfied; the officers of DGCEI came to the conclusion that the documents relating to the two companies, M/s. Ganesha Industries and M/s. Vinayak Enterprises, seized from the premises, belonged to a third party viz. Mr. Om Prakash Singh, without actually ascertaining the person who made the entries in the computer, pen drives and laptop for the said two companies. The appellant further relies on the decision of this Tribunal in the case of M/s Jai Balaji Industries Ltd. Vs. CGST reported in 2023-VIL-771-CESTAT-KOL-CE to drive home the point that the data recovered from the computer and laptop recovered from a third-party premises is not reliable evidence to raise demand of duty on the appellant-company.

3.5. It is also their contention that oral Statements cannot be considered as relied upon evidence in adjudication proceedings, without testing the same under Section 9D of the Central Excise Act, 1944; the provisions of Section 9D of the Act is mandatory and unless the prescriptions of Section 9D are complied, the testimony of witness cannot be treated as relevant piece of material as mandated under Section 9D. The appellants submit that in the instant case, the ld. adjudicating authority has conducted cross examination of only three persons whose statements are relied upon in this case; all the other statements recorded (and mentioned in paragraph 2.2 of this order supra), are not tested in accordance with Section 9D of the Act, and hence these statements are not relevant pieces of material and cannot be admitted as evidence. Regarding the statements recorded from the three persons who were cross examined, the appellants have submitted that they have retracted their statements before the ld. adjudicating authority and hence, the statements recorded from them during the course of investigation cannot be relied upon as they were not given voluntarily.

3.5. The appellant submits that without any corroborative evidence, documents recovered from third-party premises and some statements recorded from the concerned persons alone is not sufficient to sustain the charge of clandestine removal; in this case, there is an allegation of unaccounted production and clearances of 80283.470 M.T of Sponge Iron during the period from September 2010 to 8th April 2013; to establish clandestine clearances of such huge quantity of finished goods, there must be corroborative evidences in the form of purchase of raw materials, deployment of labour, arrangement of transportation, receipt of the clandestinely cleared goods by the customers and financial transactions, receipt of money etc. It is pointed out by the appellants that in the instant case, no such corroborative evidence is available; there is no recovery of parallel invoices showing clandestine clearance of finished goods; the conclusion of clandestine clearance has been drawn from the data recovered from a third party premises; the documents relating to the two companies viz., M/s. Ganesha Industries and M/s. Vinayak Enterprises, seized from the premised belonged to a third-party Mr. Om Prakash Singh, which has been presumed to belong to the appellant company without any evidence. Thus, the appellant submits that the allegation of clandestine clearances in this case is only based on assumptions and presumptions, which vitiates the entire proceedings. In support of this contention, reliance has been placed on the following decisions:

(i) Hi Tech Abrasives Ltd. Vs. CCE [2018 (362) ELT 961 (Chha.)];

(ii) M/s Jai Balaji Industries Ltd. Vs. CCE [2023-VIL-771-CESTAT-KOL-CE];

(iii) Govinda Das Vs. CC (Prev.) Kol [2023 (385) ELT 722 (Tri.Kol.)]

3.6. Regarding the allegation of undervaluation, the appellant-company submits that the allegation of undervaluation has been levelled against them on the basis of some documents seized during the course of search; the re-determination of value on the allegation of undervaluation has been done on the basis of the highest rate on the sale of sponge iron available in the month, which is arbitrary and it is not even part of the show cause notice. It is stated that the goods of the appellant-RSIPL cannot be compared with the goods manufactured by others and therefore, both the charges of undervaluation of the goods is misconceived.

3.7. Accordingly, the appellants submit that the demands confirmed in the impugned order are not sustainable and prayed for setting aside the same.

4. The Ld. Authorized Representative representing the Revenue submits that once the primary evidence in the form of documents are available, it is not necessary to go for secondary evidences like collection of movement of goods by transports and statement of purchasers etc. The Ld. Authorized Representative of the Revenue further submits that the print-outs containing data relating to the two companies, namely, M/s. Ganesha Industries and M/s. Vinayak Enterprises, were seized from the premises of Mr. Om Prakash Singh, the Accountant, who admitted that the transaction recorded under the names of the said two companies actually belonged to the appellant-RSIPL.

4.1. The Ld. Authorized Representative of the Revenue further submits that the ld. adjudicating authority has analyzed all the evidences in detail and arrived at a categorical finding on the basis of the statement and the data recovered from the office premises of Mr. Om Prakash Singh, observing that the same actually related to the transactions of the appellant company.

4.2. He further submitted that the Director and the Manager (Accounts) are responsible for the said clandestine removals and accordingly personal penalties have been rightly imposed on them.

4.3. Accordingly, he supported the impugned order confirming the demands, along with interest and penalties.

5. Heard both sides and perused the appeal records.

6. We find that the allegation against the appellant-company (RSIPL) is with respect to manufacture and clandestine clearance of 80283.470 M.T of Sponge Iron during the period from September 2010 to 8th April 2013 without payment of appropriate duty. The demand is confirmed on the basis of data recovered during the course of search, relating to the two companies, M/s. Ganesha Industries and M/s. Vinayak Enterprises, from the premises of Mr. Om Prakash Singh, a Tax Practitioner. The demand has been raised based on the data retrieved from the computers, pen drives and laptop available in the office of Shri Om Prakash Singh as well as various statements recorded from the responsible persons of the appellant-company.

7. Thus, we observe that the issues to be decided in the present appeals are:

(i) Whether evidences available on record from the data retrieved from the computers, pen drives and laptop at the premises of Shri Om Prakash Singh, who is a Tax Practitioner maintaining data relating to various companies, including that of the appellant-company, are sufficient to demand duty on account of clandestine manufacture and clearance of 80283.470 M.T of Sponge Iron during the period from September 2010 to 8th April 2013, by the appellant-company?

(ii) Whether the conditions mentioned in Section 36B have been followed in this case or not, to rely upon the print-outs taken from the computers, pen drives and laptop available in the office of Shri Om Prakash Singh, a third party, as evidence?

(iii) Whether the procedure as set out in Section 9D of the Central Excise Act, 1944 has been followed in this case or not? If not followed, then whether the statements recorded under Section 14 of the Central Excise Act, 1944 can be relied upon to demand duty?

(iv) Whether the allegations of clandestine clearance of finished goods by the appellant-company are substantiated with corroborative evidence?

(v)Whether the demands confirmed in the impugned order on clandestine clearance of finished goods is sustainable in the absence of any evidence of procurement of the major raw materials for manufacture of 80283.470 M.T. of Sponge Iron?

(vi) Whether evidences available on record indicate undervaluation?

(vii) Whether penalty is imposable on the appellant-company, its Director and its Manager (Accounts), on the basis of the evidences available on record?

7.1. Issue No. (i) Whether evidences available on record from the data retrieved from the computers, pen drives and laptop at the premises of Shri Om Prakash Singh, who is a Tax Practitioner maintaining data relating to various companies, including that of the appellant-company, are sufficient to demand duty on account of clandestine manufacture and clearance of 80283.470 M.T of Sponge Iron during the period from September 2010 to 8th April 2013, by the appellant-company?

Issue No. (ii) Whether the conditions mentioned in Section 36B have been followed in this case or not, to rely upon the print-outs taken from the computers, pen drives and laptop available in the office of Shri Om Prakash Singh, a third party, as evidence?

7.1.1. From the facts on record, we observe that on 11th April, 2013, a search was conducted at the appellant’s factory premises as well as at the office and residence of the appellant’s Accounts Consultant viz. Mr. Om Prakash Singh, a tax practitioner, who used to do back up processing required for accounting of his various clients. The appellant-RSIPL was one of his clients.

7.1.2. From the factory and office of the appellant-company, verification was conducted on raw material stock and finish goods stock and they were found to be in order. All the stock statements, raw materials stock, finished goods stock, sales invoices, etc. were found to be matching with the computerized weighing scale of which printouts were taken and matched. From the office premises various documents such as Document No. 10, 21, 30, 37 and 41/DGCEI/RSIPL/SO/JRU/13 and43/DGCEI/RSIPL/R/13 were seized. These documents also contained weigh bridge records from September 2010 to April 2013. These weigh bridge records were computer generated. No incriminating documents were found showing any clandestine clearance. Statements of various work staff, lineman and supervisors, gate supervisors were taken. We observe that the search of the office and factory premises of the appellant-company has not yielded any incriminating document evidencing clandestine manufacturing and clearance.

7.1.3. A search was also conducted at the office of Shri Om Prakash Singh, a Tax Practitioner who maintains accounts of many clients including that of the appellant-company, during the course of which various documents were recovered. The documents retrieved from that office contains clearances of sponge Iron effected by two companies namely, M/s. Ganesha Industries and M/s. Vinayak Enterprises. The submission of the appellants is that the above firms are two trading firms dealing in sale of sponge iron independently, on their own and the appellant-company has nothing to do with the transactions recorded in the name of the said two companies; however, the officers had concluded that all the clearances of sponge iron shown to be effected by the said two companies were actually made by the appellant-company only. We observe that the officers came to that conclusion mainly on the basis of statements recorded from the Appellant’s representative and Mr. Om Prakash Singh. According to the appellant, they were taken to the office of DGCEI, Jamshedpur without summons where they were tortured and confessional statements were taken from Shri Om Prakash Singh, Mr. Mahanand Kumar and others and they were forced to pay Rs.1 Crore, which was paid by them under severe threat to life; that after they came out from the office of DGCEI Jamshedpur, the appellant’s representatives and Mr. O.P. Singh, Shri Mahanand Kumar account assistant of Mr. O.P. Singh, all retracted the confessional statements given before the DGCEI officers. The Appellant contested forceful realisation of the amounts by filing a Writ Petition before the Hon’ble High Court at Ranchi wherein the Court passed an order restraining the Department from encashing any cheque. All the persons, namely, Shri Om Prakash Singh, Shri Mahanand Kumar and the staff who gave their statements during the course of investigation, have retracted their statements and filed retraction applications. Accordingly, the appellants have submitted that the entire demand has been confirmed on the basis of the statements recorded, which are all retracted. Thus, it is their submission that the demands confirmed on the basis of these evidences is not sustainable.

7.1.4. From the print outs taken from the computers, pen drives and laptop recovered from the office of Shri Om Prakash Singh, we observe that the DGCEI officers made the allegation that M/s. Vinayak Enterprises is a firm which has been created to provide the cover for clearance of excisable goods by RSIPL. In support of these allegations the officers cited the Documents no. 56, 57, 59, 60, /DGCEI/JRU/RSIPL/R/13 & DGCEI/RSIPL/SO/JRU/13-. We observe that these files, inter alia, contain VAT invoices of M/s. Vinayak Enterprises together with permits, weighment slips and transport documents. The allegation of the Department is that sponge iron shown as dispatched to parties under tax invoices of M/s. Vinayak Enterprises, were actually loaded in and dispatched from the factory of RSIPL. Accordingly, the investigating officers concluded that VAT invoices of M/s. Vinayak Enterprises were used for clandestine clearances of sponge iron from the factory of RSIPL. The same allegation has been made against M/s. Ganesha Industries also. We observe that both M/s. Vinayak Enterprises and M/s. Ganesha Industries are VAT registered firms. There is no evidence available on record to prove that they were created by RSIPL. We also observe that the Department alleged that M/s. Vinayak Enterprises’s proprietor viz. Mr. Rajesh Kumar Pandey was an employee of RSIPL. However, we observe that this claim is unsubstantiated as no statement was recorded from Mr. Rajesh Kumar Pandey. Even if it is true, that alone is not sufficient to conclude that VAT invoices of M/s. Vinayak Enterprises were used for clandestine clearances of sponge iron from the factory of RSIPL. Similarly, we observe that the allegation of usage of VAT invoices of M/s. Ganesha Industries by RSIPL to effect their clandestine clearance has also been made only on the basis of assumptions and presumptions, without any corroborative evidence.

7.1.5. We observe that the appellants questioned the evidentiary value of the entire document recovered from the premises of Shri Om Prakash Singh on the ground that conditions mentioned in Section 36B had not been followed to rely upon the data. We observe that the print-outs were taken from the computers, pen drives and laptop recovered from the office of Shri Om Prakash Singh. Pen drives and laptops are floating devices and unless the person who entered the data in the computers, pen drives and laptop are identified, the data recovered from the devices cannot be relied upon to demand duty. In this case, we observe that the persons who entered the data in the computers, pen drives and laptop are not identified and certificate as required under section 36B(4) has not been taken. Section 36B (4) mandates that any computer printout has to be signed by a person occupying a responsible official position in relation to the operation of the relevant device and a certificate is to be given to that effect. This is required to establish the ownership of the data recovered from the computer device, lap top or pen drive. In the present case, we observe that neither the mandatory conditions of Section 36B(2) have been complied with nor there is any certificate on record as mandated under Section 36B(4). Thus, we hold that the print-outs taken from the computers, pen drives and laptop cannot be relied upon to demand duty in this case, as the provisions of Section 36B(2) and 36B(4) are not satisfied.

7.1.6. In support of their contention that the computer printouts resumed from the computers, pen drives and laptop in this case are not admissible evidences, unless the mandatory procedure prescribed in Section 36B is followed, the appellants cited various decisions. We observe that in the case of Ambica Organics vs. Commissioner of C.Ex. & Cus., Surat-I reported in 2016 (334) E.L.T. 97 (Tri.-Ahmd)., it has been held as under:

“7. After hearing both the sides and on perusal of the records, I find that the Central Excise officers while visiting the factory of the appellant, recovered a USB drive in the appellant’s premises. The USB drive was connected with computer and a printout was taken by the computer expert accompanied with the Central Excise officers. The printout gives the details of the certain sales (date-wise) commencing from 1-4-2005. The delivery challans for various chemicals for the month of December, 2005 and January, 2006 were found and seized during the search. The appellants disowned the contents of the printout and stated that it has manipulated the data base with motive, to take revenge from the partner and the firm for the refusal of the loan of Rs. 1 lakh sought by the Computer Operator. The appellant filed an affidavit disclosing this fact on 13-2-2006 i.e. immediately after the raid and a copy of the affidavit was also given to the investigating officer. The Central Excise officers attempted to corroborate the contents of the printout with the statements of 30 persons viz. buyers, transporters etc. The appellants requested for cross-examination of 30 persons which was rejected by the Adjudicating authority. The appellants contended that the statements are pre-drafted computer statements and it cannot be voluntary nature. After considering the submissions of the appellant, the Commissioner (Appeals) allowed the cross-examination of 4 persons randomly selected. Three of them stated that they were made to sign the pre-drafted statements on a promise that no action shall be taken against them.

8. For the purpose of proper appreciation of the case, the relevant portion of the findings of the Commissioner (Appeals) is reproduced below : –

“4.5 Another contention of the appellant is that department has brought artificial evidence in the form of 30 statements from the buyer parties. The appellant stand is that the statements of the 30 parties are pre-drafted computer statements and involuntary. Four of the buyers (randomly selected) deposed before me. Three of them stated before me that they were made to sign a pre-drafted statement on a promise that no action shall be taken against them. One of them stated that his statement was voluntary. In the statements it has been recorded that these person stated that they received the textile auxiliary chemicals without invoice and against cash payments. Statement of these 30 persons (most of them Processors) are against their own interest as it makes them liable for penal action for purchasing dutiable goods on which duty was not paid. However, no show cause notice is given to these persons who have admitted to have received the impugned goods without bills. This fact gives credence to the allegations made by the appellant that the statements were not voluntary. It is apparent that the thirty statements have been recorded under a promise that no action shall be taken against them. Under these facts and circumstances, the evidentiary value of these thirty statements is considerably weakened. However, the solid evidence in the form of electronic records (USB Drive) and the computer printout from the same are sufficient to nail the appellant.”

9. The Commissioner (Appeals) observed that the evidence in the form of electronic record (USB drive) the computer printout are strong evidence to establish the clandestine removal of the goods. It is seen that the said printout of the data in the USB drive contained the details of raw material and finished goods along with the names and addresses of the suppliers and the purchasers of the finished goods. It is seen that the statements were recorded to corroborate the contents of the printout and the Commissioner (Appeals) had held that the said statements has no strong evidentiary value. Shri Anil Gupta, Partner of the appellant firm had stated that he was not aware of the details contained in the USB drive.

10. Learned Advocate submitted that the clandestine manufacture and removal of the goods cannot be upheld based on the printout of the data contained in the USB drive without following the requirement of condition of Section 36B of the Central Excise Act, 1944. Section 36B of the said Act provides admissibility of microfilms, facsimile copies of documents and computer printouts as documents and as evidence. Clause (c) of Section 36B(1) states that the statement contained in a document and included in a computer printout would be an evidence if the condition mentioned in the sub-section (2) and other provisions contained in this section are satisfied in relation to the statement and the computer in question, shall be deemed to be the document for the purpose of this Act and the rules made thereunder and can be admissible in proceedings. Sub-section (2) of Section 35B provides the condition referred to in sub-section (1) in respect of the computer printout shall be the following viz.

“(a) the computer printout containing the statement was produced by the computer during the period over which the computer was used regularly to store or process information for the purposes of any activities regularly carried on over that period by the person having lawful control over the use of the computer;

(b) during the said period, there was regularly supplied to the computer in the ordinary course of the said activities, information of the kind contained in the statement of the kind from which the information so contained is derived;

(c) throughout the material part of the said period, the computer was operational properly or, if not, then any respect in which it was not operating properly or was out of operation during that part of that period was not such as to affect the production of the document or the accuracy of the contents; and

(d) the information contained in the statement reproduced or is derived from information supplied, to the computer in the ordinary course of the said activities.”

Sub-section (4) of Section 36B requires issue a certificate in this behalf by a person occupying the responsible official position in relation to the operation of the relevant device or the management of the relevant activity (whichever is appropriate) shall be evidence in any matter stated in the certificate and for the purpose of the sub-section, which shall be sufficient for a matter to be stated to the best of the knowledge and the belief of the persons stating it. In the present case, the data was not stored in the computer. It is stated that the computer expert accompanied with the Central Excise officers had taken the printout from the USB drive by connecting to the computer. The officers had not obtained any certificate as required under Section 36B of the said Act. It is also noted that none of the conditions under Section 36B(2) of the Act, 1944 was observed. In such situation, it is difficult to accept the printout as an evidence to support the clandestine removal of the goods. It is noted that the requirement of certificate under Section 36B(4) is also to substantiate the veracity of truth in the operation of electronic media. In the case of M/s. Premier Instrument & Controls Ltd. (supra), the Tribunal has held that the printout of the personal computer of the company’s officer, had not fulfilled the statutory condition laid down under Section 36B(2) of the Act and the demand is not sustainable. The relevant portion of the said decision is reproduced below : –

“9. On the demand of duty on waste and scrap, again the appellants have made out a strong case on merits. The demand covering the period November, 1993 to September, 1998 is based on certain computer printout relating to the period February, 1996 to September, 1998. These printouts were generated from a personal computer of Shri G. Sampath Kumar, a junior officer of the Company, whose statements were also recorded by the department. Admittedly, whatever facts were stated by Shri Sampath Kumar, in his statements, were based on the entries contained in the computer printouts. The statements of others, recorded in this case, did not disclose any additional fact. Therefore, apparently, what is contained in the computer printout is the only basis of the demand of duty on waste and scrap. The question now arises as to whether these printouts are admissible as evidence, in this case. Ld. Sr. Counsel has pointed out that the computer print-outs did not satisfy the statutory conditions. He has referred to the relevant provisions of Section 36B of the Central Excise Act which deals with admissibility of computer printouts etc. as evidence and says that the statement contained in a computer printout shall be deemed to be a document for the purposes of the Act and the rules made thereunder and shall be admissible as evidence of the contents of its original, if the conditions mentioned in sub-section (2) and other provisions of the Section are satisfied in relation to the statement and the computer in question. Sub-section (2) reads as under : –

“2. The conditions referred to in sub-section (1) in respect of the computer printout shall be the following, namely : –

(a) the computer printout containing the statement was produced by the computer during the period over which the computer was used regularly to store or process information for the purposes of any activities regularly, carried on over that period by the person having lawful control over the use of the computer;

(b) during the said period, there was regularly supplied to the computer in the ordinary course of the said activities, information of the kind contained in the statement of the kind from which the information so contained is derived;

(c) throughout the material part of the said period, the computer was in operation properly or, if not, then any respect in which it was not operating properly or was out of operation during that part of that period was not such as to affect the production of the document or the accuracy of the contents; and

(d) the information contained in the statement reproduced or is derived from information supplied to the computer in the ordinary course of the said activities.”

Ld. Sr. Counsel has argued that the above conditions were not fulfilled in respect of the computer printout taken from the personal computer of Shri Sampath Kumar. It appears from the statement of Shri Sampath Kumar and the averments in the memorandum of appeal that it is an admitted fact that Shri Sampath Kumar was the person having lawful control over the use of the computer. The computer was not shown to have been used regularly to store or process information for the purposes of any activities regularly carried on by the company. It was also not shown that information of the kind contained in the computer printout was regularly supplied by the Company to the personal computer of Shri Sampath Kumar in the ordinary course of activities. Again, it was not shown that, during the relevant period, the computer was operating in the above manner properly. The above provision also casts a burden on that party, who wants to rely on the computer printout, to show that the information contained in the printout had been supplied to the computer in the ordinary course of business of the company. We find that none of these conditions was satisfied by the Revenue in this case. We have considered the Tribunal’s decision in International Computer Ribbon Corporation v. CCE, Chennai (supra). In that case, as in the instant case, computer printouts were relied on by the adjudicating authority for recording a finding of clandestine manufacture and clearance of excisable goods. It was found by the Tribunal that the printouts were neither authenticated nor recovered under Mahazar. It was also found that the assessee in that case had disowned the printouts and was not even confronted with what was contained therein. The Tribunal rejected the printouts and the Revenue’s finding of clandestine manufacture and clearance. We find a strong parallel between the instant case and the cited case. Nothing contained in the printouts generated by Sampath Kumar’s PC can be admitted into evidence for non-fulfilment of the statutory conditions. It is also noteworthy that the computer printouts pertained to the period February, 1996 to September, 1998 only but the information contained therein was used for a finding of clandestine removal of waste and scrap for earlier period also, which, in any case, was not permissible in law. In the result, we hold that the entire demand of duty on waste and scrap is liable to be set aside.”

11. Taking into consideration the overall facts and circumstances of the case, I find that the entire case was made out on the basis of statements of the buyers and the computer printout. Commissioner (Appeals) already held that the evidentiary value of the statements is weak. It is also noted that the statements of the 30 persons were mostly similarly pre-drafted. The investigating officers failed to comply with the conditions of Section 36B of the Act in respect of relying upon this computer printout. There is no adequate material available on record to establish the clandestine removal of goods. Therefore, the demand of duty solely on the basis of these materials cannot be sustained. Hence, as the clearance value was within the SSI exemption, the confiscation of the goods cannot be sustained. So, the imposition of penalties are not warranted”

7.1.7.In the case of Anvar P.V. Vs. P.K. Basheer reported in 2017 (352) E.L.T. 416 (S.C.), the Hon’ble Supreme Court has held as under:

“13. Any documentary evidence by way of an electronic record under the Evidence Act, in view of Sections 59 and 65A, can be proved only in accordance with the procedure prescribed under Section 65B. Section 65B deals with the admissibility of the electronic record. The purpose of these provisions is to sanctify secondary evidence in electronic form, generated by a computer. It may be noted that the Section starts with a non obstante clause. Thus, notwithstanding anything contained in the Evidence Act, any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer shall be deemed to be a document only if the conditions mentioned under sub-section (2) are satisfied, without further proof or production of the original. The very admissibility of such a document, i.e., electronic record which is called as computer output, depends on the satisfaction of the four conditions under Section 65B(2). Following are the specified conditions under Section 65B(2) of the Evidence Act :

(i) The electronic record containing the information should have been produced by the computer during the period over which the same was regularly used to store or process information for the purpose of any activity regularly carried on over that period by the person having lawful control over the use of that computer;

(ii) The information of the kind contained in electronic record or of the kind from which the information is derived was regularly fed into the computer in the ordinary course of the said activity;

(iii) During the material part of the said period, the computer was operating properly and that even if it was not operating properly for some time, the break or breaks had not affected either the record or the accuracy of its contents; and

(iv) The information contained in the record should be a reproduction or derivation from the information fed into the computer in the ordinary course of the said activity.

14. Under Section 65B(4) of the Evidence Act, if it is desired to give a statement in any proceedings pertaining to an electronic record, it is permissible provided the following conditions are satisfied :

(a) There must be a certificate which identifies the electronic record containing the statement;

(b) The certificate must describe the manner in which the electronic record was produced;

(c) The certificate must furnish the particulars of the device involved in the production of that record;

(d) The certificate must deal with the applicable conditions mentioned under Section 65B(2) of the Evidence Act; and

(e) The certificate must be signed by a person occupying a responsible official position in relation to the operation of the relevant device.

15. It is further clarified that the person need only to state in the certificate that the same is to the best of his knowledge and belief. Most importantly, such a certificate must accompany the electronic record like computer printout, Compact Disc (CD), Video Compact Disc (VCD), pen drive, etc., pertaining to which a statement is sought to be given in evidence, when the same is produced in evidence. All these safeguards are taken to ensure the source and authenticity, which are the two hallmarks pertaining to electronic record sought to be used as evidence. Electronic records being more susceptible to tampering, alteration, transposition, excision, etc. without such safeguards, the whole trial based on proof of electronic records can lead to travesty of justice.

16. Only if the electronic record is duly produced in terms of Section 65B of the Evidence Act, the question would arise as to the genuineness thereof and in that situation, resort can be made to Section 45A – opinion of examiner of electronic evidence.

17. The Evidence Act does not contemplate or permit the proof of an electronic record by oral evidence if requirements under Section 65B of the Evidence Act are not complied with, as the law now stands in India.”

7.1.8.Section 65B of the Evidence Act is pari materia with Section 36B of the Central Excise Act, 1944. From the above observation of the Hon’ble Apex Court and the decision in the case of Ambica Organics referred above, we find that unless the conditions of Section 65B(2) of the Evidence Act, which is pari materia with Section 36B(4) of the Central Excise Act, are complied with, no reliance can be placed on any data recovered from computer printouts. Admittedly, the procedure set out in Section 36B has not been followed in this case. Thus, by following the judgement of the Hon’ble Apex Court and the other decisions cited above, we hold that the data resumed from the computer print-outs alone cannot be relied upon to demand duty, without any corroborating evidence.

7.1.9.From the facts on record, we observe that in the present case the author of entry of data has not been identified. Hence, the data recovered from the computers, pen drives and laptop in the office premises of Shri Om Prakash Singh cannot be relied upon as evidences to substantiate the allegation of clandestine manufacture of sponge iron by the appellant company. Further, except statement of Shri Om Prakash Singh, there is no other evidence available on record to substantiate the allegation that entire sale of sponge Iron effected by the two companies namely, M/s. Ganesha Industries and M/s. Vinayak Enterprises are actual sales effected by the appellant-company (RSIPL) using their names. It is also observed that Shri Om Prakash Singh also later retracted his earlier statements during the course of cross-examination. Thus, on the basis of the evidences available on record and by relying on the decisions cited above, we answer the questions at sl. nos. (i) and (ii) raised at paragraph 7 of this order (supra) in the negative.

7.2. Issue No. (iii) Whether the procedure as set out in Section 9D of the Central Excise Act, 1944 has been followed in this case or not? If not followed, then whether the statements recorded under Section 14 of the Central Excise Act, 1944 can be relied upon to demand duty?

7.2.1. The appellants have contended that statements recorded during the course of investigation cannot be relevant without testing the same under Section 9D of the Central Excise Act, 1944. We find that the provisions of Section 9D of the Act are mandatory and unless the prescriptions of Section 9D are complied, the testimony of witness cannot be treated as relevant piece of material as mandated under Section 9D. In the instant case, we observe that many statements were recorded from persons associated with the appellant-company such as Shri Rajesh Kumar Agrawal, Supervisor of RSIPL, on 11.04.2013 & 01.07.2013, Statements of Shri Shyam Dutt Sharma, Manager Accounts of RSIPL, recorded on 11.04.2013 & 09.07.2013, Statement of Shri Mahanand Kumar, Accounts Assistant of RSIPL, recorded on 11.04.2013, Statements of Shri Om Prakash Singh, Manager (Accounts) of RSIPL, recorded on 11.04.2013 & 03.07.2013, Statement of Shri Chanchal Kumar, Dispatch Assistant of RSIPL, recorded on 12.06.2013, Statement of Shri Sarfraj Ahmad, Computer Operator of RSIPL, recorded on 17.07.2013., Statement of Shri Amarnath Singh, Director of M/s. Uday Vijay Steel Pvt. Ltd. recorded on 14.08.2014 and Statement of Shri Mahabir Prasad Rungta, Director, RSPIL, recorded on 05.06.2015. These statements were relied upon in the impugned order to substantiate the allegations of manufacture and clandestine clearance of 80283.470 M.T of Sponge Iron during the period from September 2010 to 8th April 2013. The main evidences relied upon by the ld. adjudicating authority to confirm the demand are the documents recovered from the computers, pen drives and laptop recovered from the premises of the Tax Practitioner namely, Shri Om Prakash Singh and the statements recorded from various persons associated with the appellant-company. With regard to relying on the statements recorded in this case to substantiate the allegations, the appellants submit that such statements cannot be relied upon in this case as the mandate as prescribed under Section 9D of the Central Excise Act, 1944 are not followed.

7.2.2.In his statement Shri Om Prakash Singh stated that wherever the name of M/s. Ganesha Industries, appears it denotes that the actual transactions were carried out by RSPIL. Shri Om Prakash Singh submitted that M/s. Vinayak Enterprises is a trading firm registered with commercial taxes department, but the invoices of Vinayak Enterprises were used by RSPIL for effecting Kachha sales, i.e., clandestine clearances. However, Shri Mahabir Prasad Rungta categorically stated that RSPIL has no relation with M/s. Ganesha Industries or M/s. Vinayak Enterprises. On the basis of the statement of Shri Om Prakash Singh, the officers came to the conclusion that the documents relating to the two companies, viz. M/s. Ganesha Industries and M/s. Vinayak Enterprises were actually belonging to the appellant-company (RSIPL) only. Accordingly, it was alleged that all the sales of Sponge Iron shown against the said two companies are to be considered as the manufacture and clandestine clearance of the said goods by the appellant-company.

7.2.3. During the course of the adjudication proceedings, cross examination of three persons, namely, Shri Anandi Shukla, Proprietor of M/s. Ganesha Industries, Shri Om Prakash Singh, the Accountant and Tax Consultant and Shri Suman Jha, Proprietor of M/s. Vinayak Enterprises was permitted. During the course of cross examination before the Adjudicating Authority, Shri Anandi Shukla, the Proprietor of M/s. Ganesha Industries stated that he had engaged Shri Om Prakash Singh as Accountant and he was filing Tax returns, etc.. and he was paying all taxes for Ganesha Industries. When the documents bearing numbers 50/DGCEI/RSIPL/SO/JRU/13 and 51/DGCEI/RSIPL/SO/JRU/13, created from the data recovered from the computers, pen drives and lap tops available in the office of Shri Om Prakash Singh were shown to Shri Anandi Shukla and he was asked whether it belonged to him, he categorically stated that these documents belong to him and that he had purchased the goods mentioned therein and had paid all taxes and filed all returns thereof. No re-examination was done of Shri Anandi Shukla by the Adjudicating Authority. Thus, we observe that the earlier statement of Shri Om Prakash Singh has been contradicted by Shri Anandi Shukla and the said statements are not admissible as evidence.

7.2.4. During the course of cross examination, Shri Om Prakash Singh stated that he worked for various clients, namely, M/s J. K. Medical Agency, M/s. Ganesha Industries, M/s. Vinayak Enterprises, M/s. Balaji Industries, and other retail dealers. He stated that he used to get 35,000 from M/s Ganesha Industries. He was getting the retainer fee from Ramgarh Sponge Iron Ltd. He stated that the documents related to M/s Ganesha Industries did not belong to Ramgarh Sponge and that he was tortured and his statement was not voluntarily taken and he was beaten up and he filed F.I.R. before the Police. We observe that no exception was made or re-examination was done by the Adjudicating Authority against the above said submissions made by Shri Om Prakash Singh. Thus, the earlier statements of Shri Om Prakash Singh stand retracted and not admissible as evidence.

7.2.5. Shri Suman Kumar Jha, Proprietor of M/s. Vinayak Enterprises was also cross examined and he stated that the documents shown to him were his documents and he was paying VAT and local taxes. He has no connection with RSIPL.

7.2.6. Thus, after the cross examination, we observe that the appellants have demonstrated that M/s. Vinayak Enterprises and M/s. Ganesha Industries had engaged Shri Om Prakash Singh as their Tax Adviser and he filed their returns. Shri Om Prakash had taken the premises on rent and he also filed a rent agreement for the office premises from where he was operating, i.e. Umar Niwas, Shastri Nagar, Ramgarh Cantonment, Ramgarh. This shows that he had an independent office from where he was operating. Shri Om Prakash Singh filed reply wherein he stated that he was not aiding or abetting any person and categorically stated that the trading done by M/s. Ganesha Industries and M/s. Vinayak Enterprises were lawfully done and shown in VAT returns which he has vetted and advised; that his office was filing their returns and doing all data processing works.

7.2.7. Thus, we observe that during the course of cross examination, Shri Om Prakash Singh has retracted his earlier statement that the entire sale of sponge Iron effected by the two companies namely, M/s. Ganesha Industries and M/s. Vinayak Enterprises are actually sales effected by the appellant-company using their names. We observe that even after the retraction by Shri Om Prakash Singh during cross examination, the ld. adjudicating authority relied upon his statement to include all transactions in the name of M/s. Ganesha Industries and M/s. Vinayak Enterprises to arrive at the turnover of the appellant/RSIPL and confirmed the central excise duty from the appellant company, which is legally not sustainable.

7.2.8. We find that the appellants have also submitted that in respect of the other statements relied upon in the impugned order, the mandate as provided under Section 9D has not been followed and hence they cannot be relied upon as evidences against the appellant-company. In support of their contention that the other statements recorded in this case cannot be relied upon as the provisions of section 9D are not followed, the appellants relied upon the decision in the case of G-Tech Industries Vs Union of India reported in 2016 (339) E.L.T. 209 (P&H), wherein the Hon’ble Punjab and Haryana High Court has given an elaborate finding regarding the procedure to be followed under Section 9D. The relevant part of the above judgement is reproduced below: –

“3. The petitioner seeks, by means of the present writ petition, to challenge Order-in-Original No. V(29)15/ce/Commr.Adj/Chd-II/44/2015, dated 4-4-2016 issued by respondent No. 2 whereby respondent No. 2 has confirmed differential Central Excise Duty (hereinafter referred to “as duty”) demand of ` 7,08,38,008/- with interest and equivalent penalty. It is contended that the impugned order-in-original has been passed in flagrant violation of Section 9D of the Central Excise Act, 1944 (hereinafter referred to as “the Act”) by relying upon the statements recorded under Section 14 of the Act without first admitting them in evidence in accordance with the procedure prescribed in this regard by Section 9D(1)(b) of the Act.

4. In view of the fact that the case of the petitioner is essentially premised on Section 9D of the Central Excise Act, 1944, it would be appropriate to reproduce the said provision, in extenso, thus :

“9D. Relevancy of statements under certain circumstances. – (1) A statement made and signed by a person before any Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, –

(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable; or

(b) when the person who made the statement is examined as a witness in the case before the Court and the Court is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.

(2) The provision of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before a Court.”

5. A plain reading of sub-section (1) of Section 9D of the Act makes it clear that clauses (a) and (b) of the said sub-section set out the circumstances in which a statement, made and signed by a person before the Central Excise Officer of a gazetted rank, during the course of inquiry or proceeding under the Act, shall be relevant, for the purpose of proving the truth of the facts contained therein.

6. Section 9D of the Act came in from detailed consideration and examination, by the Delhi High Court, in J.&K. Cigarettes Ltd. v. CCE, 2009 (242) E.L.T. 189 (Del.) = 2011 (22) S.T.R. 225 (Del.). Para 12 of the said decision clearly holds that by virtue of sub-section (2) of Section 9D, the provisions of sub-section (1) thereof would extend to adjudication proceedings as well.

7. There can, therefore, be no doubt about the legal position that the procedure prescribed in sub-section (1) of Section 9D is required to be scrupulously followed, as much in adjudication proceedings as in criminal proceedings relating to prosecution.

8. As already noticed herein above, sub-section (1) of Section 9D sets out the circumstances in which a statement, made and signed before a Gazetted Central Excise Officer, shall be relevant for the purpose of proving the truth of the facts contained therein. If these circumstances are absent, the statement, which has been made during inquiry/investigation, before a Gazetted Central Excise Officer, cannot be treated as relevant for the purpose of proving the facts contained therein. In other words, in the absence of the circumstances specified in Section 9D(1), the truth of the facts contained in any statement, recorded before a Gazetted Central Excise Officer, has to be proved by evidence other than the statement itself. The evidentiary value of the statement, insofar as proving the truth of the contents thereof is concerned, is, therefore, completely lost, unless and until the case falls within the parameters of Section 9D(1).

9. The consequence would be that, in the absence of the circumstances specified in Section 9D(1), if the adjudicating authority relies on the statement, recorded during investigation in Central Excise, as evidence of the truth of the facts contained in the said statement, it has to be held that the adjudicating authority has relied on irrelevant material. Such reliance would, therefore, be vitiated in law and on facts.

10. Once the ambit of Section 9D(1) is thus recognized and understood, one has to turn to the circumstances referred to in the said sub-section, which are contained in clauses (a) and (b) thereof.

11. Clause (a) of Section 9D(1) refers to the following circumstances :

(i) when the person who made the statement is dead,

(ii) when the person who made the statement cannot be found,

(iii) when the person who made the statement is incapable of giving evidence,

(iv) when the person who made the statement is kept out of the way by the adverse party, and

(v) when the presence of the person who made the statement cannot be obtained without unreasonable delay or expense.

12. Once discretion, to be judicially exercised is, thus conferred, by Section 9D, on the adjudicating authority, it is self-evident inference that the decision flowing from the exercise of such discretion, i.e., the order which would be passed, by the adjudicating authority under Section 9D, if he chooses to invoke clause (a) of sub-section (1) thereof, would be pregnable to challenge. While the judgment of the Delhi High Court in J&K Cigarettes Ltd. (supra) holds that the said challenge could be ventilated in appeal, the petitioner has also invited attention to an unreported short order of the Supreme Court in UOI and Another v. GTC India and Others in SLP (C) No. 21831/1994, dated 3-1-1995 [since reported in 1995 (75) E.L.T. A177 (S.C.)], wherein it was held that the order passed by the adjudicating authority under Section 9D of the Act could be challenged in writ proceedings as well. Therefore, it is clear that the adjudicating authority cannot invoke Section 9D(1)(a) of the Act without passing a reasoned and speaking order in that regard, which is amenable to challenge by the assessee, if aggrieved thereby.

13. If none of the circumstances contemplated by clause (a) of Section 9D(1) exists, clause (b) of Section 9D(1) comes into operation. The said clause prescribes a specific procedure to be followed before the statement can be admitted in evidence. Under this procedure, two steps are required to be followed by the adjudicating authority, under clause (b) of Section 9D(1), viz.

(i) the person who made the statement has to first be examined as a witness in the case before the adjudicating authority, and

(ii) the adjudicating authority has, thereafter, to form the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.

14. There is no justification for jettisoning this procedure, statutorily prescribed by plenary parliamentary legislation for admitting, into evidence, a statement recorded before the Gazetted Central Excise officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act. The use of the word “shall” in Section 9D(1), makes it clear that, the provisions contemplated in the sub-section are mandatory. Indeed, as they pertain to conferment of admissibility to oral evidence they would, even otherwise, have to be recorded as mandatory.

15. The rationale behind the above precaution contained in clause (b) of Section 9D(1) is obvious. The statement, recorded during inquiry/investigation, by the Gazetted Central Excise officer, has every chance of having been recorded under coercion or compulsion. It is a matter of common knowledge that, on many occasions, the DRI/DGCEI resorts to compulsion in order to extract confessional statements. It is obviously in order to neutralize this possibility that, before admitting such a statement in evidence, clause (b) of Section 9D(1) mandates that the evidence of the witness has to be recorded before the adjudicating authority, as, in such an atmosphere, there would be no occasion for any trepidation on the part of the witness concerned.

16. Clearly, therefore, the stage of relevance, in adjudication proceedings, of the statement, recorded before a Gazetted Central Excise officer during inquiry or investigation, would arise only after the statement is admitted in evidence in accordance with the procedure prescribed in clause (b) of Section 9D(1). The rigour of this procedure is exempted only in a case in which one or more of the handicaps referred to in clause (a) of Section 9D(1) of the Act would apply. In view of this express stipulation in the Act, it is not open to any adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry before the Gazetted Central Excise officer, unless and until he can legitimately invoke clause (a) of Section 9D(1). In all other cases, if he wants to rely on the said statement as relevant, for proving the truth of the contents thereof, he has to first admit the statement in evidence in accordance with clause (b) of Section 9D(1). For this, he has to summon the person who had made the statement, examine him as witness before him in the adjudication proceeding, and arrive at an opinion that, having regard to the circumstances of the case, the statement should be admitted in the interests of justice.

17. In fact, Section 138 of the Indian Evidence Act, 1872, clearly sets out the sequence of evidence, in which evidence-in-chief has to precede cross-examination, and cross-examination has to precede re-examination.

18. It is only, therefore,-

(i) after the person whose statement has already been recorded before a Gazetted Central Excise officer is examined as a witness before the adjudicating authority, and

(ii) the adjudicating authority arrives at a conclusion, for reasons to be recorded in writing, that the statement deserves to be admitted in evidence,

that the question of offering the witness to the assessee, for cross-examination, can arise.

19. Clearly, if this procedure, which is statutorily prescribed by plenary parliamentary legislation, is not followed, it has to be regarded, that the Revenue has given up the said witnesses, so that the reliance by the CCE, on the said statements, has to be regarded as misguided, and the said statements have to be eschewed from consideration, as they would not be relevant for proving the truth of the contents thereof.

20. Reliance may also usefully be placed on Para 16 of the judgment of the Allahabad High Court in C.C.E. v. Parmarth Iron Pvt Ltd., 2010 (260) E.L.T. 514 (All.), which, too, unequivocally expound the law thus :

“If the Revenue choose (sic chose?) not to examine any witnesses in adjudication, their statements cannot be considered as evidence.”

21. That adjudicating authorities are bound by the general principles of evidence, stands affirmed in the judgment of the Supreme Court in C.C. v. Bussa Overseas Properties Ltd., 2007 (216) E.L.T. 659 (S.C.), which upheld the decision of the Tribunal in Bussa Overseas Properties Ltd. v. C.C., 2001 (137) E.L.T. 637 (T).

22. It is clear, from a reading of the Order-in-Original dated 4-4-2016 supra, that Respondents No. 2 has, in the said Orders-in-Original, placed extensive reliance on the statements, recorded during investigation under Section 14 of the Act. He has not invoked clause (a) of sub-section (1) of Section 9D of the Act, by holding that attendance of the makers of the said statements could not be obtained for any of the reasons contemplated by the said clause. That being so, it was not open to Respondent No. 2 to rely on the said statements, without following the mandatory procedure contemplated by clause (b) of the said sub-section. The Orders-in-Original, dated 4-4-2016, having been passed in blatant violation of the mandatory procedure prescribed by Section 9D of the Act, it has to be held that said Orders-in-Original stand vitiated thereby.

23. The said Order-in-Original, dated 4-4-2016, passed by Respondent No. 2 is, therefore, clearly liable to be set aside.

24. In view of the above facts and circumstances, the impugned Order-in-Original dated 4-4-2016 passed by respondent No. 2 stands set aside. Resultantly, the show cause notice issued to the petitioner is remanded to respondent No. 2 for adjudication de novo by following the procedure contemplated by Section 9D of the Act and the law laid down by various judicial Authorities in this regard including the principles of natural justice in the following manner :-

(i) In the event that the Revenue intends to rely on any of the statements, recorded under Section 14 of the Act and referred to in the show cause notices issued to Ambika and Jay Ambey, it would be incumbent on the Revenue to apply to Respondent No. 2 to summon the makers of the said statements, so that the Revenue would examine them in chief before the adjudicating authority, i.e., before Respondent No. 2.

(ii) A copy of the said record of examination-in-chief, by the Revenue, of the makers of any of the statements on which the Revenue chooses to rely, would have to be made available to the assessee, i.e., to Ambika and Jay Ambey in this case.

(iii) Statements recorded during investigation, under Section 14 of the Act, whose makers are not examination-in-chief before the adjudicating authority, i.e., before Respondent No. 2, would have to be eschewed from evidence, and it would not be permissible for Respondent No. 2 to rely on the said evidence while adjudicating the matter. Neither, needless to say, would be open to the Revenue to rely on the said statements to support the case sought to be made out in the show cause notice.

(iv) Once examination-in-chief, of the makers of the statements, on whom the Revenue seeks to rely in adjudication proceedings, takes place, and a copy thereof is made available to the assessee, it would be open to the assessee to seek permission to cross-examine the persons who have made the said statements, should it choose to do so. In case any such request is made by the assessee, it would be incumbent on the adjudicating authority, i.e., on Respondent No. 2 to allow the said request, as it is trite and well-settled position in law that statements recorded behind the back of an assessee cannot be relied upon, in adjudication proceedings, without allowing the assessee an opportunity to test the said evidence by cross-examining the makers of the said statements. If at all authority is required for this proposition, reference may be made to the decisions of the Hon’ble Supreme Court in Arya Abhushan Bhandar v. U.O.I., 2002 (143) E.L.T. 25 (S.C.) and Swadeshi Polytex v. Collector, 2000 (122) E.L.T. 641 (S.C.).

25. The writ petition is allowed in the aforesaid terms.”

7.2.9.Thus, regarding the statements recorded from the three persons who were cross examined, we observe that they have retracted their statements before the adjudicating authority, Hence, the statements recorded from them during the course of investigation cannot be relied upon as they were not given voluntarily. In respect of the other statements relied upon in the impugned order, the mandate as provided under Section 9D ibid. has not been followed and hence they cannot be relied upon as evidences against the appellant company. Further, the appellants have submitted before us that they were taken to the office of DGCI, Jamshedpur without summons where they were tortured and confessional statements were taken from Shri Om Prakash Singh and Shri Mahanand Kumar and others and they were forced to pay Rs.1 Crore, which was paid by them under severe threat to life; that after they came out from the office of CGCEI Jamshedpur, the appellant’s representatives and Shri Om Prakash, Shri Mahanand Kumar, Account Assistant of Shri Om Prakash Singh, all retracted their confessional statements. The appellants contested forceful realisation of the amounts by filing a Writ Petition before the Hon’ble High Court at Ranchi wherein the Court passed an order restraining the Department from encashing any cheque. Thus, we observe that the persons, namely, Shri Om Prakash Singh, Shri Mahanand Kumar and the staff who gave their statements during the course of investigation, retracted their statements and filed retraction applications. In respect of the remaining statements, the adjudicating authority should have followed the procedure as set out in Section 9D and conducted Examination-in-Chief of all the persons whose statements are relied upon. Admittedly, the procedure as set out in Section 9D was not followed to extract the truth. We observe that the entire demand has been confirmed on the basis of the statements recorded, which are all retracted. Thus, by relying on the decision in the case of G-Tech Industries cited above, we hold that the demands confirmed in the impugned order on the basis of these statements is not sustainable.

7.2.10. We observe that the impugned order has relied upon the statements and held that the appellants had accepted clandestine removal of finished goods. Had the adjudicating authority followed the provisions of Section 9D and examined the witnesses who have given the statements, the truth in their statements could have come out. Thus, we hold that the statements recorded in this case have lost their evidentiary value by not following the provisions of Section 9D. Therefore, we hold that the statements recorded in this case cannot be relied upon to confirm the demands. Accordingly, we answer the question at sl. No. (iii) at paragraph 7 (supra) in the negative.

7.3. (iv) Whether the allegations of clandestine clearance of finished goods by the appellant-company are substantiated with corroborative evidence?

(v) Whether the demands confirmed in the impugned order on clandestine clearance of finished goods is sustainable in the absence of any evidence of procurement of the major raw materials for manufacture of 80283.470 M.T. of Sponge Iron?

7.3.1. In this case, we observe that duty has been demanded and confirmed in the impugned order on account of clandestine clearance of 80283.470 M.T. of Sponge Iron during the period from September 2010 to 8th April 2013. The adjudicating authority has mainly relied upon the evidence of the data recovered from the computer, pen drives and laptop available in the office premises of the Tax Practitioner viz. Shri Om Prakash Singh to confirm the demands in the impugned order. We observe that during the course of cross examination of the proprietors of the trading firms viz. M/s. Ganesha Industries and M/s. Vinayak Enterprises, they have categorically stated that the transaction recorded in the name of their company belonged to them only and they have not dealt with the sponge iron manufactured by RSIPL. With regard to the alleged clandestine removal of the goods i.e., sponge iron, on behalf of the manufacturing company-RSIPL, the appellant submitted that the data recovered from the premises of Shri Om Prakash Singh contained the names of purchasers and their addresses. However, no verification was done at their end to ascertain the factual position of the clearances. We observe that a verification at the end of the recipients would have clarified that with whom they placed the orders and who actually supplied the goods.

7.3.2.The appellants also cited many judgments wherein it has been categorically laid down that when the names of the buyers were available in the seized records it would be incumbent on the investigation to make inquiries from the buyers for establishing clandestine removal.

7.3.3.In the case of Kumar Cotton Mills (P) Ltd. Vs Commissioner of Central Excise, Ahmedabad, reported in 2008 (229) E.L.T. 273 (Tri.-Ahmd.), it has been held that demand of duty cannot be held merely on the basis of some entries available in the private registers. Positive, tangible evidences are required to confirmed demands on clandestine removal; the demands cannot be made on assumptions and presumptions. The relevant portion of the said decision reads as under:

“6. After considering the submissions made by both sides and after going though the impugned order, we find that the demand stand confirmed against the appellant on the basis of entries made in the so-called lot register read with statement of the Director, though the appellants have denied that such lot register belong to them, in as much as they used the letter ‘K’ for allotting lot number and the word ‘W’ was never used by them, we find that said lot register, in any case, is a private document. We have seen the said lot register giving details of the clearances along with the name and address of the buyer. Surprisingly enough, neither of the buyers, whose names and addresses were available in the said register, stand contacted by the Revenue and no efforts have been made by them to find out and ascertain the correct position from the said buyers, by investigating them and by recording their statements. This failure on the part of the officers definitely act as fatal to the Revenue’s case, in as much as it is well settled law that the entries in the private record cannot be made the sole basis for upholding the allegations of clandestine removal unless there is a corroborative independent evidence on record. Similarly, statement made by the Director does not stand corroborated in any material particular from any other independent source. The gist of all the decisions relied upon by the learned advocate is to the effect that the allegations of clandestine removal are required to be established beyond doubt, by production of positive, tangible and independent corroborative evidence and such findings should not be arrived at on the basis of assumptions and presumptions. As we have already observed that inspite of the availability of names and addresses of the buyers, the officers have not bothered to conduct investigations at their end, so as to establish the Revenue’s case, we are of the view that the sufficient evidence does not exist in the present case, so as to uphold the findings of clandestine activity against the appellant.”

7.3.4. In the instant case, we find that the investigation has not brought in any corroborative evidence to substantiate the allegation of clandestine removal. In order to confirm the demands for clandestine clearances, there should be tangible evidence of clandestine manufacture and clearance and merely inferences or unwarranted assumptions are not sufficient. There must be evidence in the form of:

a. Raw materials, in excess of that contained as per the statutory records;

b. Instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty.

c. Discovery of such finished goods outside the factory.

d. Instances of sales of such goods to identified parties.

e. Receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;

f. Use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validity cleared on payment of duty.

g. Statements of buyers with some details of illicit manufacture and clearance;

h. Proof of actual transportation of goods, cleared without payment of duty

i. Links between the documents recovered during the search and activities being carried on in the factory of production; etc.

7.3.5. In view of the above findings, we hold that the investigation has failed to establish the alleged clandestine clearance of goods by the appellants and hence the demands confirmed in the impugned order, without any corroborative evidence, is not sustainable. Accordingly, answers to the questions at Sl. Nos. (iv) and (v) in paragraph 7 (supra) are in the negative.

7.4. (vi) Whether evidences available on record indicate undervaluation?

7.4.1. Regarding the allegation of undervaluation, we observe that the said allegation has been levelled against the appellant on the basis of some documents seized during the course of search. The re-determination of value has been done on the basis of the highest rate of sale of sponge iron available in the month, which is legally not sustainable. We also observe that the determination of under valuation has been done beyond the scope of the show cause notice We observe that the goods manufactured by the appellant-RSIPL cannot be compared with the goods manufactured by others and therefore, we hold that the charges of undervaluation of the goods is not sustainable. Accordingly, we hold that the demand confirmed on account of undervaluation is not sustainable.

7.4.2. Hence, we hold that the allegation of undervaluation in the impugned order is not substantiated. Accordingly, the answer to the question at sl. no. (vi) in paragraph 7 (supra) is in the negative.

7.5. (vii) Whether penalty is imposable on the Appellant company, it’s Director and the Manager (Accounts), on the basis of the evidences available on record?

7.5.1. Regarding penalty of Rs.12,69,58,230/- imposed on the appellant-company, we observe that in view of the discussions in the foregoing paragraphs, the allegations of manufacture and clandestine clearance have not sustained. Accordingly, the demand of central excise duty along with interest and imposition of penalty equal to this duty amount on the appellant-company does not arise. Hence, we set aside the penalty of Rs.12,69,58,230/-imposed on the appellant-company (RSIPL).

7.5.2. Regarding the penalty of Rs.50,00,000/- imposed on Shri Mahabir Prasad Rungta, Director of the RSIPL, we observe that the Director in his statement maintained that they have nothing to do with the transactions recorded in the name of M/s. Ganesha Industries and M/s. Vinayaka Enterprises, which are trading firms. We also find that there is no evidence available on record to show that Shri Mahabir Prasad Rungta, Director was concerned with transporting, removing, depositing, keeping, concealing, selling and purchasing of excisable goods, which he had knowledge, or reason to believe were liable to confiscation. We find that no evidence has been brought on record to establish that the Directors are involved in clandestine manufacture and clearance of the goods. As the evidence available on record does not establish the clandestine manufacture and clearance, we hold that the penalty imposed on the Director is not sustainable. Accordingly, we hold that no penalty imposable on him and hence we set aside the penalty of Rs.50,00,000/- imposed on the Director.

7.5.3. Regarding the penalty of Rs.5,00,000/- imposed on Shri Om Prakash Singh, Manager (Accounts) of the appellant-company, we observe that initially during the course of search he has stated that the data related to M/s. Ganesha Industries and M/s. Vinayaka Enterprises actually pertained to RSIPL. However, during the course of cross examination, he retracted his stand and submitted that he worked for trading firms, including M/s. Ganesha Industries and M/s. Vinayak Enterprises. He stated that he used to get Rs.35,000 from M/s Ganesha Industries. He was getting the retainer fee from RSIPL. He stated that the said documents were relating to M/s. Ganesha Industries only and they did not belong to RSIPL/appellant and that he was tortured and his statement given on the date of search was not voluntarily taken and he was beaten up and he filed F.I.R. before the Police also. We observe that no exception was made or re-examination was done by the Adjudicating Authority on the above submissions. Thus, we hold that the role of the Accountant viz. Shri Om Prakash Singh in abetting the offence has not been established. Accordingly, we set aside the penalty of Rs.5,00,000/- imposed on him.

8. In view of the above discussion, we answer the questions raised in paragraph 7 of this Order, as under:

(i) The evidences available on record do not indicate that the data pertaining to M/s. Ganesha Industries and M/s. Vinayaka Enterprises, retrieved from the premises of Shri Om Prakash Singh, belonged to the appellant-company. The person who entered the data in the computers, pen drives and laptop has not been identified.

(ii) As the conditions mentioned in Section 36B has not been followed in this case, the computer printouts taken from the computers, pen drives and laptop recovered during the search cannot be relied upon as evidence, to demand duty.

(iii) The statements retracted at the time of cross examination have no evidentiary value and the same cannot be relied upon to demand duty. Other statements have not been examined as per the procedure set out in Section 9D of the Central Excise Act, 1944. Thus, the statements recorded under Section 14 of the Central Excise Act, 1944, in this case cannot be relied upon to demand duty on the alleged clandestine clearances.

(iv) The allegations of clandestine clearance of finished goods by the appellant-company are not sustained, as there is no corroborative evidence to substantiate the said allegation.

(v) The demands confirmed in the impugned order on account of undervaluation are not sustainable.

(vi) Penalties are not imposable on the appellant-company (RSIPL), its Director viz. Shri Mahabir Prasad Rungta and the Manager (Accounts) viz. Shri Om Prakash Singh and hence the same are set aside.

9. In view of the discussions above, we set aside the impugned order and allow the appeals filed by all the three appellants, with consequential relief, if any, as per law.

(Order pronounced in the open court on 05.09.2024)